By Daniel Shin
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What has been correlated with others in the past no longer moves in step according to expectations. The renminbi (RMB or Chinese yuan) has broken its traditional ties with the U.S. dollar (USD), which has been followed by much visible divergence in recent months, for example. Currently, uncertainties reign. What complicates assessments of potential USD-RMB decoupling is, though, the prolonged impact of pandemic uncertainties, geopolitical tensions and wars, central banks' monetary policies and rate hikes under inflationary pressures. These are not purely economic issues anymore.
Global supply chains are so complex. The whole global supply chain is tightly interlinked together. As we've seen from the pandemic to war, supply chain disruptions have had a huge negative impact on global industrial production, trade, inflation and so forth. The supply chain is supposed to be more resilient without sacrificing competitiveness, economic interests and national security.
However, global geopolitical tensions, economic and techno-nationalism strain weak links especially in global tech supply chains. Development, reach and the success of emerging technologies are highly dependent on tightly linked global supply chains and research networks. Efficiency under tight coupling has begun to diminish and has been replaced by the pursuit of resilience under loose coupling in global supply chains. Supply chain decoupling will further accelerate in the wake of the superpower rivalry.
To further these changes, the decoupling of the U.S. and Chinese technology supply chains is well underway. The U.S. presidents have committed to rapid decoupling without knowing what consequences would really follow. The Chinese Communist Party (CCP) is pushing its policy agenda, the Made in China 2025 and China Standards 2035 initiatives, with the intention to shore up China's plans to proclaim independence and dominate in cutting-edge technologies and future industries. This techno-nationalism is on an unprecedented scale, putting $1.4 trillion into digital infrastructure and public spending to advance this policy agenda.
The U.S.-China competition has already reached a tipping point. It has also morphed into a new technology cold war. There should be a high cost as extensive trade and commercial ties would continue on uncertain terms. This is not ideal and, formidably, global technology supply chains are at risk.
The consequences of a technology cold war are negative for any companies that depend on foreign technologies as well as their global suppliers and R&D networks. Ultimately, it is bad news for consumers. Local technology companies could gain from rising nationalism and domestic substitution to a certain extent, though. But, it is a lose-lose game in the end.
Tensions between the U.S. and China have sparked calls for policies to decouple the multifaceted economic ties that have connected these two superpowers for decades. Advocates in Washington, D.C. have argued that such policies should ensure the U.S.' economic leadership, reduce its dependence on Chinese technologies and strategically important materials, and ultimately limit any potential vulnerabilities in key sectors that are important for national security and intelligence activities.
The U.S.' past efforts to decouple supply chains in satellite technology is a good example. Lately, policymakers have also pushed export control and trade policy for technologies related to artificial intelligence (A.I.). Only a few days ago, the Bureau of Industry and Security (BIS) under the Biden administration announced new extraterritorial limits to China on the export of any advanced semiconductors, chip-making equipment and supercomputer components.
Decoupling is likely to continue even if it might be a lower priority for the Biden administration at least on the surface. Given that China and the U.S. see potential risks as they are overly dependent on each other, there is a momentum that won't disappear easily in the short term. Trump's rather erratic and scattered regulation and public statements offered little clarity to participants in the global supply chain. Biden's actions are supposed to be more systematic than Trump's, but long-term U.S. goals have remained largely hidden underneath bureaucratic opacity, the business of politics and rhetorical platitudes. The semiconductor export control policy is only the tip of the iceberg.
Technology is the engine that powers economic prosperity and growth. Many are worried whether America is prepared to defend or compete in the A.I. era. America has been technologically dominant for such a long period of time during and after the Cold War, where we witnessed competition in the political, economic, ideological, diplomatic, military, social and technological dimensions between the U.S. and the Soviet Union.
In this past superpower rivalry, emerging economies like East Asia, India, Latin America and Africa were adversely affected in many ways. The situation has not changed much for the better with the emergence of the new technology cold war. This domination has been characterized by the process of globalization, largely led by the U.S., in virtually every sphere of our lives.
Now, multinational companies face situations where they need to make a more difficult decision. The U.S. will continue to reassess whether and how to remain the technology leader, interdependent from its major rival, China. Semiconductor export controls may strengthen domestic innovation and hobble its chief rival, China, but would that be enough to protect core national security interests or retain hegemony by any means?
We should not take for granted all those innovations and technologies that we have enjoyed over the decades. China, a strong contender for global tech leadership, has already emerged. China is moving fast with such astonishing speed while we are all still staring at it and trying to understand the true implications.
Both the U.S. and China's tech sectors continue to benefit businesses, universities and citizens in countless ways, providing skilled labor and high value-added business revenue opportunities to sustain the global economy and relentless efforts to advance R&D. But that same technology leadership could also power the wrong people, building upon unfair trade practices, repressive social controls, or even military forces with bad intentions. So, we shall take it all in stride and make the right next move.
Daniel Shin is a venture capitalist and senior luxury fashion executive, overseeing corporate development at MCM, a German luxury brand. He also teaches at Korea University.